After a very long and painful bear market, 2003 will be known as the turn around year – a year of transition. The year started out scary as markets continued to plummet in the first quarter but the last nine months of the year proved to be one of the stronger rallies in history.
In this article I want to provide a synopsis of what was hot and what was not. As you go through this article keep in mind that far too often investors mistakenly believe that if something was the top last year it is likely to be the top this year, when history has shown that this is less likely to happen. While chasing hot performers is a common occurrence, it is a strategy that rarely works. Regardless, it is always fun to know the winners versus the losers.
Top 3 performing mutual funds
Let's start with the top three performing mutual funds in 2003. At the top of the charts was the Acuity Pooled Canadian Small Cap which delivered an impressive 102.8% 1 year return. This is not a common mainstream mutual fund. It is designed for higher net worth individuals, as the minimum investment is a mere $150,000. The second place fund is also a high net worth fund with a $150,000 minimum investment – the Dynamic Power Hedge. This fund also had a triple digit return of 101.5%. Rounding out the top three was the Dynamic Global Resource with a 93.8% return. Before you put money into this fund consider that it has a 4.47% management expense ratio (MER). All three funds have a higher than average risk level.
At the other end of the list with the worst performance in 2003 was the Argentum US Master Portfolio fund. This fund lost 93.8% in 2003.
Top 3 sectors
Next, lets take a look at the different sectors. Here in Canada, the best performing sector on the TSX was the Metal and Minerals sector delivering a 55.1% return over 12 months. Most of the returns in this sector came in the last half of the year.
The second best performing sector in Canada was the Real Estate sector. Real Estate has gotten a lot of attention in 2003 and why not? The Real Estate sector delivered a 44.1% return in 2003.
The worst performing sector in Canada was actually the only sector to post a negative return in 2003. The Paper and Forest sector lost 2% last year
Most popular types of funds
According to the data from the Investment Funds Institute of Canada (IFIC), balanced funds, bond funds, dividend and income funds were the top sellers of the year. These categories experienced net sales of over $9.3 billion in 2003.
One the other side, investors were selling out of equity funds to the tune of $4.8 billion dollars.
Top 3 mutual fund categories
IFIC breaks all mutual funds down into 34 separate and distintinct categories. The best performing mutual fund category was the Precious Metals category with an 82.9% average return. Next on the list was the Canadian Small Cap category with a 38.8% return in 2003. The worst performing category of 2003 was the foreign bonds. Interestingly, foreign bond funds were one of the best categories in 2002.
Lastly, we will look at some of the different regions of the world. In this section the returns are in Canadian dollar terms. Latin America and Emerging Markets lead the charge. The S&P/CitiGroup Latin America index posted a 1 year return of 44.5% in 2003. Next was the S&P/Citigroup Germany index, which posted a 35.5% return.
For Canadian investors, the US was the worst region as a whole to be in. Much of the reason had little to do with the market return in the US. Rather, a falling US dollar created the different picture for Canadian investors.
So there you have some of the best and worst investments of 2003. The data came from Morningstar. Remember investments that make the top and bottom are not necessarily the best or worst place to invest your money moving forward. The one thing that is most often true is that investments that make the top and bottom lists are usually the riskiest investments because it requires risk to get to the top (and bottom).